OT, EACarl:
You said: "Even though I agree with your fair value analysis, most people don't
care and they buy the "big name" companies they have heard
of without regard for what is a reasonable value."
Exactly. That's what scares me so much. There is a great article in the 11/22/99 Fortune, Buffett's thoughts on the market. He says that, in the long run, stock prices are controlled by interest rates, and profit growth. Profit growth, in turn, is limited by the growth in the overall economy, since margins cannot expand forever. Interest rates topped out in 1981, and profit margins bottomed in 1986. We have been benefiting from falling interest rates and rising profit margins since then, but both trends have gone about as far as they can. According to a recent poll, investors with less than 5 years experience expect 22% yearly stock returns. That expectation requires a continuation of the trends of the recent past: PE expansion, falling interest rates, rising profit margins. Those are not reasonable expectations, at least not for the overall stock market. When Mr. Market realises his expectations are not realistic, then all stocks are going down.
Buffett says, "Once a bull market gets under way, and once you reach the point where everbody has made money no matter what system he or she uses, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks."
I've done very well, by doing the opposite of the crowd. The end is nigh. |
